MET - Metlifecare - one for the fundies?

[Beagle]

MET could be a good company if they can learn to run their new developments in such a manner as to add genuine value. I'm not convinced this will happen anytime soon.

[BlackPeter]

Thanks for the clarification, BP. It looks like you are using NPAT, not underlying earnings, in your calcs. I would strongly advise against ever using NPAT in any kind of valuation formula for this sector (but I'm sure you already knew that)

Yes I do ... and given that the retirement village providers are basically real estate companies (well, that's where their money comes from) do I think that it is quite justified to do so.

It just depends whether you see the revaluation gains as "one-off"s (even if they seem to come like clockwork) ... or (long term) as a normal part of the revenue stream. Historically it was exactly that (normal part of the revenue stream), but who knows what the future will bring, maybe after negative interest rates do we get a long term deflation of property values? Personally I see that as unlikely, but who knows?

Again - different approaches and I am sure we both can (with the benefit of hindsight) identify time windows where one approach or the other would have been more appropriate for a "real estate" company, though I suspect that it might be more difficult to find long time windows where for a real estate company the underlying value approach would have been more accurate.

Never mind - lets leave this discussion to the religious fanatics. I am happy with my approach and I assume you are happy with yours. What better outcome could we imagine?

[silu]

Management doing their bit to turn it around and I assume the market will like it.
ASSET: MET: Metlifecare - Sale of Wairarapa Village

Date: 21 April 2016
Media Release

METLIFECARE - SALE OF WAIRARAPA VILLAGE

Metlifecare has entered into a sale and purchase agreement for the sale of
its Wairarapa Village in Masterton for $6 million, payable in cash.

The agreement is subject to the following procedural conditions to be
satisfied by 31 May 2016:

1. The statutory supervisor's approval, including relating to the purchaser's
financing and security arrangements.
2. Transfer of the required Ministry of Health/DHB contracts for operation of
the care home within the village.

Subject to satisfaction of these conditions, settlement of the sale is
scheduled for 30 June 2016.

Wairarapa Village operates in a market that has lower opportunities for
growth for Metlifecare, due to local market dynamics and a less attractive
real estate environment.

This agreement presents an opportunity to reallocate the capital receipted
from this sale to continue the company's focus on greenfield and brownfield
developments in high growth areas that represent stronger future yields.

Metlifecare is proud to have been associated with this village for over 30
years.

ENDS

[winner69]

So villages and their residents are just 'resources' to enrich the rich?

Don't make enough dosh so out with the bath water it goes

Who bought it? Probably somebody with a greater social conscience rather than a capitalist mindset

[Beagle]

According to my contact, GM at one of the major Australian owned real estate agencies, that area of the country has been a very poor performer in terms of real estate values in recent years.
Whether management can make more money by reinvesting elsewhere given their recent track record in new developments remains to be seen.

Sale of an entire village for only $6m ? Surely that's a typo ?

[Bjauck]

So villages and their residents are just 'resources' to enrich the rich?

Don't make enough dosh so out with the bath water it goes

Who bought it? Probably somebody with a greater social conscience rather than a capitalist mindset

Ouch! Does the sub-optimal use of capital end up helping more people?

[Hectorplains]

According to my contact, GM at one of the major Australian owned real estate agencies, that area of the country has been a very poor performer in terms of real estate values in recent years.
Whether management can make more money by reinvesting elsewhere given their recent track record in new developments remains to be seen.

Sale of an entire village for only $6m ? Surely that's a typo ?

Yeah, no mention of what they had it valued at on their books either.

[Beagle]

Yeah, no mention of what they had it valued at on their books either.

Good point and by extension no mention of whether they made a profit on sale.

Biggest issue that I've mentioned before is the company has $700m of embedded, (difference between current value of occupation licences and what present occupiers paid for them) value in its balance sheet and given an average stay of 7 years if they stopped all development activity and streamlined all overhead costs and ran each village as a stand alone unit that broke even they could theoretically make $100m in underlying profit just from natural churn of existing units and do nothing else. This would appear to create more value for shareholders than any other strategy !

So why in a booming market are they only forecasting $65m underlying profit this year ? Where has the other $35m gone ? What value, if any are their development activities which they allege have a 12% development margin actually delivering for shareholders ? Early in my career I was an auditor and something doesn't feel right here.

History with RYM has shown us that companies that add real value through their development activities are the ones that generate fantastic long term value for shareholders. I'd imagine that MET shareholders would be very disappointed that development margins have gone backwards recently at a time when the market is absolutely booming implying pricing power for the new units constructed. One wonders what might happen to development margins in an environment when there wasn't so much pricing power

[winner69]

Ouch! Does the sub-optimal use of capital end up helping more people?

Depends on what value you put on 'social' things instead of dollars on a balance sheet

[OldGuy]

Looks like this dog has more than just fleas.

Can't remember the last time that RYM or SUM divested a village...